The SoundExchange Debate

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This is Celia Hirschman with On the Beat for KCRW.

The record business has notoriously been a closed mouth business. There's been little airing of laundry in public. But the digital music business is a bit more progressive.

Internally, top members of the digital music industry have been discussing the Congressionally appointed, nonprofit performance-rights organization, SoundExchange. SoundExchange or SX, collects statutory royalties from satellite and Internet radio as well as cable TV music channels. The royalties are for streaming music only, not downloading. SoundExchange is also charged with the responsibility of distributing these funds to the owners of the music masters. Often the owners are record labels, but they can also be artists as well.

SoundExchange independently incorporated in 2003, and in their first year, collected a little more than $15 million. In 2010, they estimate they will collect more than a quarter billion. That kind of seven-year growth, coupled with managing the metadata for millions of songs, is bound to create a lot of administrative nightmares.

Industry online forums are soliciting feedback about the organization. And at every major digital music conference I've attended, SoundExchange has been on the hot seat about its policies and practices.

Some artists question the complicated nature of registering. Twenty- two pages of legal information need to be read and signed, along with IRS and banking information as well as a passport or ID.

Miss the reading and you miss some key practices. The SoundExchange Board has the right to change any rules at their discretion. They don't have to notify their membership specifically. A website newsletter is all that's needed.

A significant number feel the organization has not worked efficiently to distribute all the funds it collects. SX used to list all artists owed royalties on their website in the hopes that bands would be inspired to register. But SoundExchange now limits access of that list to registered members. This begs the question, if you are already a member, why would you need to check the list? SoundExchange already knows how to pay you. SoundExchange admits to holding $39 million in unpaid royalties this year.

But my biggest criticism of SoundExchange is that the organization still calculates royalties based on airplay logs sent in by radio and TV stations. This antiquated system leads to a significant amount of inaccuracy and under reporting. We have the technology to change this already. In a digital age, where music has a definable algorithm, it's time that SoundExchange made transparent royalty reporting their primary business.

One note before I close. Last week I reported that Ted Cohen, the head of Tag Strategic was leaving his business in 2012. As it turns out, he's not. He'll be staying at Tag.

This is Celia Hirschman with On the Beat for KCRW.